This week I started the module about ‘Museums’ on the Institute of Art & Law ‘Diploma in Art Law’ course. Where a museum is found to have disposed of an object from its collection by sale, exchange, donation or transfer by any means to any person (‘Deaccession’) in consequence of financial and economic pressures and inadequate capital and revenue funding, it may be censured by Arts Council England and stripped of its accreditation. That in turn, renders the institution ineligible for various sources of public grant and a low priority for other public schemes. Whether a non-statutory museum which is a charity has the power to deaccession is governed first by its constitution, which may or may not provide an express power. In the absence of a power, the necessary power may be obtained. However, any such power:
(i) can only be exercised in furtherance of the objects of the charity; and
(ii) in exercising the power, the trustees must perform their duties (including fiduciary duties requiring them to obtain the best ‘price’).
In addition to the module, I am also writing an essay for the course entitled, ‘Deaccessioning Powers of Museum Trustees, Duties, Powers, Variation, Applications, and Procedure.’ See the ‘Mediation of Art & Cultural Heritage Disputes’ page at www.carlislam.co.uk. This will provide a current restatement of the Law on Museum Deaccessioning.

‘What is a “Lehman moment”? Generally speaking it’s the point at which one company’s disaster becomes everyone else’s problem, as happened in September 2008 when the losses Lehman Brothers had made by betting on America’s subprime mortgage market became insupportable, the investment bank filed for the biggest bankruptcy in corporate history, and panic spread like a disease through the global financial system.’

See: The energy industry is moving into a credit crunch | LinkedIn

In order to argue an interpretation of Tax Law, the advocate must:
1st analyse the burden of proof, i.e. what the taxpayer [‘TP’]  has to prove as a matter of law regarding the relevant tax treatment by reference to:
·       the statutory framework and provisions applicable to the dispute; and
·       case law.
2nd determine the specific questions of fact,  i.e.
·       what the TP has done to fall within the ambit of the specific tax treatment asserted; or
·       whether there is a different tax treatment, because as a matter of fact, the TP did something else.
This requires detailed investigation and the drafting of a chronology of events.
3rd consider the following ‘cannons of construction’:
·       It is ‘preferable to begin with the interpretation of the legislation, and the fundamental question whether it can be given a purposive interpretation going beyond its literal terms: that is to say, whether a Ramsay approach is possible at all, and if so, the purposive construction on which it is to be based. … The question next arises how, on its proper interpretation, the legislation is to be applied to the facts.’ (UBS AG v. Revenue and Customs Comrs [2016]).
·       Where a statute contains no explanation of the purpose of the provision on which a purposive interpretation might be based, the judge may consider the historical background to and development of the legislation by reference to budget notes, explanatory notes and case law.
·       ‘… The driving principle in the Ramsay line of cases continues to involve a general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.’ (Collector of Stamp Revenue v. Arrowhead Assets Ltd [2003]).
·       When interpreting a statute, a court may adopt a strained interpretation instead of one that would be contrary to the clear intention of Parliament (Luke v. Inland Revenue Commissioners [2019]). The intention of Parliament must be clearly found on the wording of the legislation (Hancock v Revenue and Customs Comrs [2019]. An inconsistency is not sufficient. There must be a clear contradiction.
·       The headings in the statute are aids to construction (Stephens v Cuckfield Rural District Council [1960]).
·       The Explanatory Notes to an Act of Parliament may also be relevant to interpreting specific statutory provisions (R (otao Westminster City Council) v. National Asylum Support Service [2002] & Christianuyi v. Revenue and Customs Comrs [2018]).
·       For reference to be made to Hansard, there needs to be an ambiguity, obscurity or absurdity in the statutory interpretation that justifies such resort (Pepper v. Hart [1992]).

As I explain in paragraph 7.9 of my book the ‘Contentious Trusts Handbook’ published by the Law Society in July 2020, ‘An illusory trust is not a valid trust. It is a pretense. Whereas a sham is concerned with the parties subjective intentions, whether a trust is illusory turns entirely upon construction of the terms of the trust. Where in substance, what is created is not a discretionary trust, but rather a form of trust analogous either to a:

•  bare trust: or
•  fixed interest trust,

under which the settlor is to be regarded as the 100% beneficial owner of the trust fund, then the court may conclude that the trust is illusory. A trust will also be illusory if the trustees owe no enforceable duties to the beneficiaries so as to eliminate the irreducible core of obligations fundamental to the trust concept. The only trust created will be a bare or resulting trust in favour of the settlor.

As part of my summer Tax litigation update reading, which involved reading: the 10^th edition of ‘Tiley’s Revenue Law’, the 5^th edition of Keith Gordon’s book, ‘Tax Appeals – Law and Practice at the FTT’; and the 2^nd edition of Tolley’s ‘A Practical Guide to Tax Disputes’ by Adam Craggs, Julian Hickey & Jonathan Levy , I am now on page 552 of ‘Tolley’s Estate Planning 2021-2022’ by gurus Sharon & Simon McKie, which contains the following commentary about illusory trusts:

‘Another, and in some ways novel, approach to challenging a disposition into trust which fell short of a finding of sham was successfully pursued in the case of JSC Mezhdunarodniy Promshlenniy Bank v. Pugachev [2017] … The settlor, who was also the protector and a discretionary beneficiary, had reserved a substantial number of powers. It was a combination of these factors (and the particular facts of the case) which led the court to conclude inter-alia there was no real intention to create a trust and that the settlor had never intended to part with control of the assets, i.e. that the trusts were illusory. In Webb v Webb [2020], the Privy Council, on appeal from the Court of Appeal of the Cook Islands, found in Pugachev-esque fashion that, “the Court of Appeal is plainly entitled to find as it did the trustees failed to record an effective alienation by Mr Webb of any of the trust property. The bundle of rights which he retained is indistinguishable from ownership.”’ See also my earlier blog, ‘The offshore trust that never was!’

See: The hidden danger of dock strikes | LinkedIn

Since more than one court may have jurisdiction under conflict of laws principles, legislative provisions which merely proclaim that an offshore financial court has jurisdiction, do not automatically preclude the jurisdiction of an onshore court [‘OC’]. The OC will determine whether it has jurisdiction. Where the issue of jurisdiction turns on the ‘proper law’ of the trust, and the OC determines that the offshore trust is governed by onshore law, the trust will be deprived of investor friendly rules under the offshore trust law regime. Thus, the existence of an ‘exclusive jurisdiction’ clause in an offshore trust instrument is not determinative of jurisdiction. While the rule against the ‘enforcement of foreign revenue laws’ is that a state will not enforce or assist in the enforcement of the revenue laws of another state, the status of the rule is convoluted. Recently, the rule has also been circumscribed. Some offshore jurisdictions have voluntarily bypassed the rule, expressing a willingness to assist onshore tax authorities, particularly where criminal activities have been alleged. The rule should also be considered within the context of treaty arrangements, either in relation to double taxation treaties, or in the facilitation of exchange of information agreements. Therefore, a jurisdictional challenge based on ‘conflict of laws’ can nullify offshore legislative initiatives.

‘An emerging basis for assuming jurisdiction over offshore trusts, particularly by US courts, is the in rem jurisdiction of the courts in relation to fraud and injustice, utilizing an “alter-ego” or “sham” argument. In International Credit Investment Company (Overseas) Ltd  v. Adham [1997] 141 SJLB 56, the court found that it could assume jurisdiction over shadowy offshore trusts and companies and “pierce the corporate veil” of such entities because they were still “indirectly controlled” by onshore residents. The court recognized that an earlier generation of judges “would not have exercised such jurisdiction but felt that such drastic action was now a matter of necessity because of international fraud.”’ (Trusts And Related Tax Issues In Offshore Financial Law, by Rose-Marie Antoine).

What is next for Rory Stewart – ‘Still in his 40s, Stewart has already lived many lives: as an award-winning writer, a cabinet minister, a podcaster, an academic, a soldier and a diplomat. Now comes another ambitious challenge. “I think we have a chance of ending extreme poverty worldwide,” he says, absolutely impassioned. “I can lead a movement starting in Africa that can demonstrate in a couple of countries how it could be done.”
And after Stewart ends world poverty? “I’d like to take a camel from Morocco to Timbuktu,” he says.’

https://www.theguardian.com/lifeandstyle/2022/aug/29/rory-stewart-politics-privilege-podcast-stardom

His books ‘The Places In Between’ and ‘Occupational Hazards, highlight that on the ground the communities he visited in the near east are made up of villages and tribes who have their own culture, customs and practices, and do not want to be westernised. The idea that imposing democratic political structures and institutions will result in a renaissance through political cohesion and the adoption by these communities of western liberal values is naive, and demonstrates a complete lack of any granular understanding of these regions by grand strategists and political leaders in the West. Rory Stewart grasped this, which is why he is a huge loss to British politics.

BBC Proms 47 – Sheléa, Vula’s Chorale, Jules Buckley Orchestra / Jules Buckley – Aretha Franklin: Queen of Soul – Review: https://arcana.fm/2022/08/23/proms-shelea-aretha-franklin/

Sheer Joy! – and if you missed it you can replay it on BBC iPlayer.

The Singer – ‘Sheléa‘, is mentored by Stevie Wonder and is a protégée of Quincy Jones. She was a backup singer for Wonder’s Songs in the Key of Life Tour in 2014 and 2015. In 2018, she held a two-month residency at Jones’ Q’s Bar & Lounge in Dubai. (sheleamusic.com).
Conductor, arranger, curator and composer, Jules Buckley ‘is a unique and rare breed of artist. He has collaborated with some of the most important musicians on the planet, trailblazing his way through a staggering discography of almost 70 albums – more than most artists achieve in a lifetime. He is a Grammy winner with two No.1 albums and the go-to orchestrator for some of the world’s leading names in music.’ www.julesbuckley.com.

·       ‘It is not – and probably never will be – possible to state the true doctrine of tax avoidance conclusively. This is partly because of the changing membership of the judiciary, partly because of the nature of the judicial process, partly because of the variety of the situations and partly because questions of statutory construction are matters of opinion on which views may differ.’ [Tiley’s Revenue Law by Glenn Loutzenhiser, p.103].
·       For a helpful attempt to summarize the present state of the law on the Ramsay principle, see Lewinson J in Berry v. Revenue & Customs Commissioners [2011] UKUT 81, STC 1057 at para 31.
·       While courts must have respect for the legal facts created by the parties, the approach in IRC v Duke of Westminster no longer represents the law.
·       Courts look to facts and not labels.
·       In relation to transactions, the Courts will look at end results, i.e. whether the transaction is (a) circular and self-cancelling (Ramsay & Burmah), or (b) linear (Furniss v. Dawson).
·       In Ramsay, the court used the ‘composite transaction’ approach to decide that a series of ‘self-cancelling’, ‘preordained’ transactions, affected solely to generate an allowable loss for CGT purposes, was not to be given that effect. The wider ratio of the case is that the court is entitled to look at the ‘whole transaction’. As Lord Wilberforce said: ‘[The approach which the Crown contends] does not introduce a new principle: it would apply to new and sophisticated legal devices, the undoubted power and duty of the court to determine their nature in law and to relate them to existing legislation. While the techniques of tax avoidance progress are technically improved, the courts are not obliged to stand still.’
·       The new approach applies to mainstream commercial transactions by major companies , IRC v. Burmah Oil Co Ltd [1982].
·       ‘Today since MacNiven and Barclays Mercantile Business Finance, all is a matter of statutory construction, so that the basic principle is clear. However, while the basis may be clear, this simply opens the door to the real issue, which is how the statutes should be interpreted: this is not easy . … Following UBS AG and DB Group Services (UK), the key question will be whether the legislation operates “in the real world”; if so, there will be considerable scope for judges to interpret the statute in a way that justifies disregarding non-commercial steps in tax schemes. … What is clear is that, even though a GAAR has been introduced, the players (government and taxpayers alike) are still at the mercy of the courts. It is also clear that in recent years HMRC has been winning almost every pre-GAAR tax avoidance case it has brought before the courts.’ [Tiley’s Revenue Law by Glenn Loutzenhiser, p.122].

Note that the following propositions about the composite transaction doctrine are stated in Tiley:

• In determining whether there is a composite transaction the court asks whether, at the time of the first transaction, it was ‘practically certain’ that the second would follow.
• Where the composite transaction is commercial in nature the end result must reflect the commercial reality.
• The result of the application of the composite transaction doctrine must be intellectually sustainable; the court’s job is to identify the composite transaction; it may not alter the character of the transaction or pick bits out of it.
• The essence of the new approach is to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it is intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answers to the statutory description.
• The courts do not have to put their reasoning into the straitjacket of first construing the statute in the abstract and then looking at the facts. It might be more convenient to analyze the facts and then ask whether they satisfy the requirements of the statute.
• However one approaches the matter, the question is always whether the relevant provision of the statute, upon its true construction applies to the facts as found..
• The composite transaction doctrine is thus to be seen as a rule of statutory application as much as interpretation.
• The correct characterization of the composite transaction is a question of law.
• The composite transaction doctrine, as formulated in Furniss v. Dawson, applies where steps are inserted which have no business purpose other than the avoidance of tax.
• Where a particular step has been inserted in a composite transaction, the composite transaction doctrine will not apply if the taxpayer can show that there is a commercial purpose, however slight, behind the inserted step.
• The composite transaction approach is not confined to income tax or CGT; whether it applies to another tax depends on the nature of that tax.
• Both the taxpayer and the revenue may invoke the composite transaction approach.
• Where the taxpayer can bring itself clearly within (the purpose of) a specific relieving provision of the tax legislation, the court will not withhold that relief.

Lewison J in Berry v. Revenue & Customs Commissioners [2011] UKUT 81, STC 1057 at para 31, summarised the present state of the law on the Ramsay Principle as follows:

‘The Ramsay principle.

I was expertly guided by both Ms Nathan and Mr Gammie QC through the origins and development of the Ramsay principle in the House of Lords from its birth in WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101 to its maturity in Commissioners of Inland Revenue v Scottish Provident Institution (2004) 76 TC 538. I will state my own conclusions on this array of learning as shortly as I can.

In my judgment:

i) The Ramsay principle is a general principle of statutory construction (Collector of Stamp Revenue v Arrowtown Assets Ltd (2004) ITLR 454 (§ 35); Barclays Mercantile Business Finance Ltd v Mawson [2005] STC 1 (§ 36)).

ii) The principle is twofold; and it applies to the interpretation of any statutory provision:

a) To decide on a purposive construction exactly what transaction will answer to the statutory description; and

b) To decide whether the transaction in question does so (Barclays Mercantile Business Finance Ltd v Mawson (§ 36)).

iii) It does not matter in which order these two steps are taken; and it may be that the whole process is an iterative process (Barclays Mercantile Business Finance Ltd v Mawson (§ 32); Astall v HMRC [2010] STC 137 (§ 44)).

iv) Although the interpreter should assume that a statutory provision has some purpose, the purpose must be found in the words of the statute itself. The court must not infer a purpose without a proper foundation for doing so (Astall v HMRC (§ 44)).

v) In seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words, but must have regard to the context and scheme of the relevant Act as a whole (WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 184; Barclays Mercantile Business Finance Ltd v Mawson (§ 29)).

vi) However, the more comprehensively Parliament sets out the scope of a statutory provision or description, the less room there will be for an appeal to a purpose which is not the literal meaning of the words. (This, I think, is what Arden LJ meant in Astall v HMRC (§ 34). As Lord Hoffmann put it in an article on Tax Avoidance: “It is one thing to give a statute a purposive construction. It is another to rectify the terms of highly prescriptive legislation in order to include provisions which might have been included but are not actually there”: See Mayes v HMRC [2010] STC 1 (§ 30)).

vii) In looking at particular words that Parliament uses what the interpreter is looking for is the relevant fiscal concept: (MacNiven v Westmoreland Investments Ltd [2001] STC 237 (§§ 48, 49)).

viii) Although one cannot classify all concepts a priori as “commercial” or “legal”, it is not an unreasonable generalisation to say that if Parliament refers to some commercial concept such as a gain or loss it is likely to mean a real gain or a real loss rather than one that is illusory in the sense of not changing the overall economic position of the parties to a transaction: WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 187; Inland Revenue Commissioners v Burmah Oil Co Ltd (1981) 54 TC 200, 221; Ensign Tankers Ltd v Stokes [1992] 1 AC 655, 673, 676, 683; MacNiven v Westmoreland Investments Ltd (§§ 5, 32); Barclays Mercantile Business Finance Ltd v Mawson (§ 38).

ix) A provision granting relief from tax is generally (though not universally) to be taken to refer to transactions undertaken for a commercial purpose and not solely for the purpose of complying with the statutory requirements of tax relief: (Collector of Stamp Revenue v Arrowtown Assets Ltd (§ 149)). However, even if a transaction is carried out in order to avoid tax it may still be one that answers the statutory description: (Barclays Mercantile Business Finance Ltd v Mawson (§ 37). In other words, tax avoidance schemes sometimes work.

x) In approaching the factual question whether the transaction in question answers the statutory description the facts must be viewed realistically. (Barclays Mercantile Business Finance Ltd v Mawson (§ 36).

xi) A realistic view of the facts includes looking at the overall effect of a composite transaction, rather than considering each step individually: (WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 185; Carreras Group Ltd v Stamp Commissioner [2004] STC 1377 (§ 8); Barclays Mercantile Business Finance Ltd v Mawson (§ 35).

xii) A series of transactions may be viewed as a composite transaction where the series of transactions is expected to be carried through as a whole, either because there is an obligation to do so, or because there is an expectation that they will be carried through as a whole and no likelihood in practice that they will not: (WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 185).

xiii) In considering the facts the fact finding tribunal should not be distracted by any peripheral steps inserted by the actors that are in fact irrelevant to the way in which the scheme was intended to operate: (Astall v HMRC (§ 34)).

xiv) In considering whether there is no practical likelihood that the whole series of transactions will be carried out, it is legitimate to ignore commercially irrelevant contingencies and to consider it without regard to the possibility that, contrary to the intention and expectation of the parties it might not work as planned: (Commissioners of Inland Revenue v Scottish Provident Institution (2004) 76 TC 538, 558 § 23). Even if the contingency is a real commercial possibility it may be disregarded if the parties proceeded on the basis that it should be disregarded: (Astall v HMRC (§ 34)).

Although I have referred to rather more authority than the FTT (in deference to the very detailed submissions that were made to me) I do not consider that there is any difference in the general approach between my summary and the test that the FTT applied. So far, therefore, I do not consider that the decision under appeal involved any error of law.’

See: Microsoft Word – Document in Microsoft Internet Explorer (publishing.service.gov.uk)

‘An alternative solution for holding the shares of a private company or some other high risk assets on trust is to customise the trustee, rather than the trust instrument. … An estate planning arrangement may be structured by the incorporation of a private trust company, sometimes also known as a dedicated trust company, i.e. a company expressly created to act as trustee in one or more connected settlements relating to a single individual, family, or business group. … For wealth management purposes, the incorporation of a bespoke trustee company is often envisaged when the size of the intended trust fund and its composition, as well as the family dynamics potentially at stake, may exceed the responsibilities that a professional trustee is prepared to undertake (or that its insurer is prepared to cover). This is quite likely to be the case with a controlling interest in a manufacturing business, property investments in various jurisdictions, art collections, aircraft, and other vessels, especially if a combination of many, if not all of these assets is contemplated under the estate planning requirements of a particular family. The management of any or all the assets above exceeds the skills of the average professional trustee. Furthermore, if the main rationale is estate planning at the family level, some crucial exercise of trustee discretion may be called for, requiring an understanding of family matters that an outside professional trustee is unlikely to have. … A PTC, by its nature, does not offer its services to the general public. Accordingly, licensing and regulatory requirements that apply to professional trust service providers in most offshore jurisdictions are typically reduced in the case of a PTC.’ (International Trust Laws, by Paolo Panico).
Gregson v. HAE Trustees Ltd [2008] provides an English example of a company incorporated to act as trustee of family trusts following incorporation as a company limited by guarantee without a share capital. This involved bespoke drafting of the objects clause and articles. In principle, a trust deed can contain an express power to appoint a foreign trustee, and a trust corporation can be appointed as a sole trustee. In structuring a PTC the following issues need to be addressed:
·       Corporate governance at the PTC level, with the involvement of the trust beneficiaries and family members in general.
·       Licensing requirements, i.e. the choice of the jurisdiction of incorporation for the PTC.
·       The overlying holding structure for the shares of the PTC.

An interesting but rarely used concept is to use a foundation as a PTC as there can never be a shareholder, which is one drawback of a traditional PTC. If the foundation is incorporated in a traditional civil law jurisdiction then there is likely to be no licensing requirement for the foundation to act as a trustee.